With a background in economics and public policy, I've covered domestic and international energy issues since 1998. I'm the editor-in-chief for Public Utilities Fortnightly, which is a paid subscription-based magazine that was established in 1929. My column, which also appears in the CSMonitor, has twice been named Best Online Column by two different media organizations. Twitter: @Ken_Silverstein. Email: ken@silversteineditorial.com

Gun Makers Take One to the Gut

Gun makers have taken a direct hit to the gut. The nation’s second largest pension has said that it would completely liquidate all holdings that involve firearms. In making the landmark move yesterday, the California-based fund said that it is about respecting human rights and minimizing risks to human health.

The California State Teacher’s Retirement System’s heroic move is the catalyst in what is expected to become a national — and perhaps international — trend. Its decision is predicated on a philosophy that the fund declared back in the 1980s — one that had decided to withdraw all investments from the then-racist South African regime. In keeping with that stance, the institutional investor said that the killing of the 20 grade schoolers and six of their teachers is a “tipping point.”

“I think we’ve taken appropriate action, given the unspeakable and tragic loss of life that occurred in Connecticut last month — the latest in an ongoing lime of similar incidents involving assault weapons and mass casualties,” says Calstrs Investment Committee Chair Harry Keiley. “This latest incident, which occurred at a school and involved our fellow educators and the children we cherish, is a tipping point for Calstrs and speaks to the correctness of our actions. This is not only the right thing to do but positions us to deal with the financial pressures we anticipate this sector of the industry will face.”

The pension has assets totaling $154.3 billion. It says that it has about $8.8 million in private equity in the Freedom Group that makes the type of assault weapon used in the Connecticut massacre. Meanwhile, it also has $1.1 million in private equity invested in Smith & Wesson and $1.8 million Sturm Ruger. The fund will also divest from those firms that make high-capacity ammunition clips, which are now illegal in California.

The pension’s board members met yesterday, which was accessible via the web. They took up a proposal submitted by the California Treasurer, Bill Lockyer, who requested that Calstrs disinvest from those gun makers whose semi-automatic products are banned from the state.

“Divestment in such firms would comply with Calstrs’ existing investment policy and comport with the board’s fiduciary duty to members and beneficiaries,” writes Lockyer, noting that assault weapons clearly fall into the category of being a product “detrimental to public health and safety.”

And it’s not just California that is moving in this direction. It’s also Connecticut, Pennsylvania and New York. Consider New York: Its public pension fund holds $150 billion in assets and $15 million of that is invested in gun manufacturers. Meantime, the teacher’s fund there has about $38 billion in assets of which $7 million is invested in gun makers.

New York’s Comptroller Thomas DiNapoli said during a radio interview with WCNY that his office is actively investigating the possibility of withdrawing all monies from gun makers. But he says that he and his managers will examine the products that those companies market. All decisions, he adds, will be based on his fiduciary obligations to plan participants.

“We are not going to be reactionary,” DiNapoli told the radio station. “When we manage pension fund dollars, it is not with a political judgment. You have to tie it back to shareholder value.”

After the mass killings in Connecticut, the National Rifle Association released a statement saying that it would be accommodating in subsequent talks regarding future safeguards. But only days later, its chief executive, Wayne Lapierre, appeared before cameras as defiant as ever. He was then roundly denounced for his insensitivity and his belligerence.

The NRA gets most of its funding from gun manufacturers, which are pushing the political agenda — desiring to sell increasing amounts of weapons. LaPierre, who avoided service during Vietnam despite a reported low draft number and who has referred to federal law enforcement as “jack-booted thugs,” is paid about $1 million a year by his clients. Interestingly, NRA’s President David Keene’s son has been imprisoned for firing his gun during a road rage incident outside Washington, D.C.

The public mood has dramatically shifted and now favors sensible gun controls: a ban on all semi-automatic weapons and their high-capacity clips, as well as background checks at all gun shows. Still, the NRA is determined to stop such reforms and is vowing to increase gun sales. Some lawmakers who have been bullied and threatened by those lobbyists have said enough is enough. Others, though, won’t budge, meaning the future of new federal legislation is uncertain.

Therefore, the move by Calstrs is seen as a major step forward for those who favor restricting the use of high-capacity rifles — the kinds used in the Newtown, Connecticut and in the Aurora, Colorado mass killings. The money controlled by institutional investors is a key lifeline for these gun makers, who have chosen to hide behind their hired hands. If they lose their capital, they will be forced to negotiate or they will be driven into the ground.

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Thank you Forbes for this unbiased article. Did Piers Morgan write this? My god. Divest from gun manufacturers? Why dont you try calling your local gunstore and ask them about their stock, and when they will have some. My guess is they will say ‘no idea, sold out for months’. “Detrimental to public health and safety”? That’s not guns , that’d libby jibberish like this article. Disappointed.

They are already woefully short of the funds they need to provide the benefits they have promised and it is growing worse every day. Divesting themselves of a profitable investment sounds about right for these idiots.

I wonder, will they also withdraw any investments from the likes of Raytheon, Boeing, McDonnel Douglas, and the other producers of the weapons of mass death? The death of people from the use of the Ruger and S&W products pales in comparison to the deaths that the products of the military industrial complex have caused. They also spend much more money lobbying Congress than the NRA could ever dream of.

This article is just another Forbes hit piece to advance the anti gun agenda.

DiNapoli seems to be the only one mentioned or associated with this article who has any sense whatsoever. When fund managers start “playing god” they violate their fiduciary duty to their investors – it is highly unlikely all pension fund holders agree with the politics of these fund managers – yet their own retirement savings are being used to push an agenda they do not agree with.

Far from “heroic” this is self-important reprehensible behavior on the part of these fund managers – they should be held accountable for breaching their duty to their clients.

I think you are over zealous to proclaim this move as heroic. Heroic, not likely, politically reactive, most likely. I wonder what other investments could be considered bad for kids? Do they invest in any junk food, soda, fast food companies? Any entertainment companies, the ones responsible for keeping kids watching instead of getting some exercise. Do they invest in defense companies that profit from war? What about the companies that make the raw materials used by the gun makers? If you are going to take a moral stand, it should be comprehensive, not just reactionary and based on current events.

Jim, thanks for your note. I used to cover the institutional investment community for a while back in the early to mid 1990s. I can tell you, generally, that it is not a reactive bunch. It is a serious bunch, who take seriously their fiduciary obligations. At the same time, this is a group that has, on the whole, taken moral stands that are extremely laudable. The most notable is mentioned in the story and discussed in previous stories I’ve written on the Sullivan Principles and on Institutional Investors and Gun Makers. The call to consider not just shareholder interests but also those of the communities in which you serve really gets to the heart of What is Capitalism, which is another column I’ve authored. All those columns, as you might imagine, begin with the premise that corporations and money managers have responsibilities beyond increasing shareholder value. If the whole supply chain does not prosper — employees, vendors, communities, shareholders and so forth — then enterprises are less valued overall. Money managers who reward positive behaviors that improve communities are increasing value, say many studies. Now, your other point, which is where do you draw the line is a very good question: In this case, Calstrs, which has accepted the Sullivan Principles and it post its standards on its web site, has said these gun massacres are a “tipping point.” I agree. Others, such those in New York, have divested from tobacco firms. So, yes, it is subjective. But if you have a standard by which you make your investment evaluations, it can fit within an institutional investor’s parameters. As for call to divest in gun makers, I would hope it brings them to the table, or they can have their surrogates (the NRA) join the talks. If they choose to take absolutist positions, well, there may well be a run on the bank. The institutional money managers did fire a warning shot first.

The author of the article gives away any semblance of journalistic credibility by calling the move heroic. Journalists learn from day one that their job is to present the facts in a non biased way and from that part of the article on there is no debating that the author is biased.